The Global Financial Theatre of the Absurd…The show so far.

March 2, 2012 § 1 Comment

Mortgage Meltdown, Market Chaos and Testosterone

Mortgage Meltdown, Market Chaos and Testosterone – Flicker

What with all the insane ramblings of the republican primaries and Israel wanting to start another war they would ultimately loose, I thought I would get you all up to speed on the Global financial circus first with some of the insight of The Slog.

If you find this too much of a generality, let’s take a quick peek at the EU member States in trouble.

Brussels has described the Portuguese austerity programme as ‘on track’. ‘The large fiscal correction in 2011 and the strong 2012 budget have bolstered the credibility of Portugal’s front-loaded fiscal consolidation strategy,’ say the folks in the Troikabunker. No mention at all of the economy: just some vague tripe about ‘headwinds’ in 2012….so let’s get real. The GDP will contract 3.5% in 2012 – at least. As we saw at this stage in Greece, the rate of meltdown is accelerating. During 2011, unemployment went from 10% to 13.6% – 1 in 8. In order to get rid of its debt of close to €300 bn, Portugal has received €52 bn from Brussels and €26 bn from the IMF’s Extended Fund Facility. Being deemed ‘on course’, a further €9.7 billion from the EU, and about €5.2 billion by the IMF, have been handed over.

That’s €93bn of public money in one year spent to service a €300bn debt problem spread over anything from six months to 20 years and more.

It doesn’t make any kind of economic sense for anyone except the banks. And it’s being done – along with everything – to save the banks….and the euro dream that became the long-predicted nightmare….and, ultimately but very clearly, the United States of America.

And Spain ?

Spain has asked for its austerity programme to be eased up, so they’re obviously doing really well. Spanish Economy Minister Luis de Guindos told reporters he thought his EU colleagues would “understand perfectly”. Brussels sent a one-word answer yesterday: ‘no’. It’s the same story: acceleration of GDP contraction in Q4 2011, rising unemployment – 115,000 in February alone, over 26% among those under 25 years old – and all budgets are over-budget: the 3% euro-zone deficit limit is expected to overshoot to 4.9% there in 2012: just so we’re clear, that’s over 60% out in the wrong direction. A Madrid spokesperson told me that Spain’s Prime Minister Mariano Rajoy “has no plans to discuss any easing of the programme at the forthcoming summit”, but the senora seemed happy to confirm that Spain had missed all its austerity targets for 2011. I suppose she’d have sounded a bit silly trying to do otherwise, really.

And well Greece…well you know Greece.

Let’s leave Greece for another post: I’m all Greeced out this morning. We’ve all (The Slog included) become obsessed with Greece to a point where the argument about time and date of default has become a pointless pissing contest along the same lines as the Climate Change debate. There are so many imponderables, unknowns, poison pills and impracticalities involved, so many different geopolitical agendas in play, and so many vested interests breaking or spraining the rules, it can only end in tears: the timing and volume of tears are the only things left. But if I may twist the allusion kaleidoscope just one more time, Greece-guessing is like a passenger on the Hindenburg watching his skin burn, and worrying about that nice new set of luggage he bought specially for the maiden voyage.

The eurozone is ablaze, and falling to earth rapidly. It cannot survive with a southern half to it: it was a barmy idea in the first place. We’re being told that a firewall is needed to contain Greek meltdown (pass the blender again) but it’s all bollocks: the plan looks to me like the Clubmeds themselves being detonated to create the tree-gap that ends a forest fire. They are, literally – just as with the Hindenburg – the victims of the most savage and cynical sabotage in economic history.

So the Eurozone is essentially in the same pickle it has been in all along. Brussels (and Germany and France) are hoping someone starts a war or something to take the spotlight off.

Now for us. The Housing Crisis, another act that simply will not go away. Courtesy of Mike Whitney.

The reason that housing prices have dipped only 33.6 percent in the United States instead of 60 percent as they have in Ireland, is because the big banks have been keeping inventory off the market. If the millions of homes–that are presently headed for foreclosure–were suddenly dumped onto the market, prices would plunge and the biggest banks in the country would be declared insolvent. That’s why the banks have slowed the flow of foreclosures. According to Amherst Securities Group’s Laurie Goodman, “….2.8 million borrowers haven’t made a payment in over a year. Add that to the over 450,000 real estate owned (REO) units and you have approximately 3.2 million that are in the shadows. We are liquidating about 90,000 homes a month. That’s about 36 months of overhang; a really shocking number.” (See the whole interview here.)

. . . . .

Some readers will probably dispute the claim that housing prices could dip 60 percent in the US as they have in Ireland. These skeptics may want to read a new study titled “Housing, Monetary Policy, and the Recovery” released by the chief economists from the country’s two largest banks (Find it here.)

On page 29 of the report, the authors conclude that it would take “a 57% fall in housing prices would in our accounting sense eliminate housing overhang”. Their second projection estimates that it would take “a 68%” drop. So, if you bought a house in 2005 for $400,000. That house would currently be worth $128,000, a big enough loss to poke holes in anyone’s retirement plans.

So, what should the government do? Should they force the banks to release the backlog homes so prices can adjust quickly and new buyers won’t feel like they’re being gouged? But–if they do–what happens to all the people who bought homes in the last few years who suddenly discover they’re underwater? Won’t that create a whole new wave of foreclosures?

The best approach would be to reduce the principle on the mortgages of the people who are presently in some stage of foreclosure and make the banks pay for the losses. That would slow the stream of foreclosures to a trickle, stabilize the housing market, and force many of the banks into Chapter 11, which should be real goal of any mortgage modification program. The banks were the perpetrators of this gigantic mortgage laundering scam and continue to pose a threat to the financial security of every American. Dismatling the TBTF banks should be the nation’s highest priority.

So in other words, these big banks (and probably some smaller ones as well) are still the walking dead. All do regards to Dr. Dean and Krugman and even Robert Reich, the banks are still the main problem and have to be dealt with first. Or the rest is merely spinning our wheels in the ice.

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§ One Response to The Global Financial Theatre of the Absurd…The show so far.

  • dikkday says:

    WOW

    I will have to read this three or four more times.

    On CNBC this is all they talk about. I mean we lost 200 points on the Dow because of this–although 100 or more points have been taken back.

    Damn this world economy is complicated!

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